Imagine you are ready to retire and need $4,500 per month to live comfortably fo

Question

Imagine you are ready to retire and need $4,500 per month to live comfortably for 30 years from the funds invested in your retirement plan. If you currently have $600,000 in your retirement plan, what interest rate would you need to earn on the funds during the 30 years of withdrawals. Assume you are willing to withdraw interest and principal from your plan during the 30 years so that at the end of 30 years you have nothing left in the plan. If the annual interest rate needed involves taking too much risk, what can you do before retirement to have the funds you need at a lower level of risk?

Explanation / Answer

N = 360

FV = 0

PV = 600,000

PMT = -4500

use rate function in Excel and multiply by 12

annual rate required = 8.23%

to required a lesser rate, the corpus accumulated at retirement should be more than 600,000

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